Manufacturing shrinks, slowing Q2 GDP growth to 6.3%

CEA says India’s economy growing faster than in other countries, is on track for 6.8%-7% growth this fiscal

Updated - December 01, 2022 07:27 pm IST

Published - November 30, 2022 05:57 pm IST

Image for representation purpose only.

Image for representation purpose only. | Photo Credit: Reuters

Manufacturing and mining output contracted year-on-year in the July-September quarter, dragging Gross Value Added growth to a slower-than-expected 5.6%, which together with high inflation and weak exports combined to slow overall Gross Domestic Product (GDP) growth to a 6.3% pace, as per estimates released by the National Statistical Office.

At a little over ₹75 lakh crore, India’s GDP in the first half of 2022-23 was 5.7% larger than the comparable pre-COVID level. The April to June quarter of this fiscal had witnessed GDP growth of 13.5%, with GVA expanding 12.7%.

While growth in agriculture GVA quickened to 4.6% in the second quarter, from 4.5% in the preceding three months, manufacturing and mining GVA contracted 4.3% and 2.8%, respectively, in Q2 compared with a year earlier.

For the first half of 2022-23, the Indian economy recorded 9.7% growth in GDP, compared with 13.7% in the same period last year, while GVA rose 9%, compared with its 12.8% surge.

Chief Economic Advisor V Anantha Nageswaran said the data confirms that the economy’s recovery from the pandemic continues and is on track to clock between 6.8% to 7% real GDP growth this year.

Among GVA components, the sharpest growth in Q2 was reported by the contact-intensive trade, hotels, transport, communication and services related to broadcasting segment, which surged 14.7%, followed by financial, real estate and professional services, which expanded 7.2%, and construction which grew 6.6%.

Terming the manufacturing sector’s negative growth ‘a disappointment’, Bank of Baroda chief economist Madan Sabnavis attributed it to low growth at small and medium enterprises and a drop in profits for the organised sector.

EY India chief policy advisor D.K. Srivastava pointed out that the contact-intensive services segment was actually only 2.1% over pre-COVID levels, while manufacturing output was more than 6.3% over pre-pandemic levels.

“Therefore, the growth of 14.7% in trade, hotels, et. al. in 2QFY23 may not be considered unduly positive and a contraction in the manufacturing sector in this quarter may not be viewed as unduly subdued,” he concluded.

“India’s growth rates in real terms of 9.7% in the first half of this year is well above the trend in other countries and is happening amid tightening global financial conditions and the commodity price shock since the Ukraine invasion by Russia,” the CEA emphasised, adding that moderation in growth rates is expected due to base effects.

Barring consumer durables, production levels are well above pre-pandemic levels for most sectors, while in services, all but domestic air passenger traffic levels have reverted to 2019-20 trends, Mr. Nageswaran said.

“A sharp weakening of net exports in Q2 compared with a year ago level has also weighed on overall GDP growth,” CARE Ratings said in a note. “With fears of a global growth slowdown and weaker currency, the decline in net exports will remain a cause of concern,” it added, stressing that a ‘pick-up in domestic demand’ would be most critical for the economy going forward.

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